Part VII: Governance
The new Code of Companies and Associations also amended certain principles in relation to governance.
We refer to our previous newsletters on the specific types of companies, associations and foundations, for an explanation on the governance models that are applicable within each of the different types of legal entities.
In the present newsletter we focus on a number of amendments that have an impact on the personal position of the directors and officers of legal entities.
Permanent representative
The new Code of Companies and Associations maintains the possibility that a legal entity can act as director, member of the supervisory board, managing director or member of the management board, in which case the legal entity appoints a permanent representative.
Under the new Code, a natural person who acts as a permanent representative of a legal entity within a specific body cannot be member of the same body on his personal behalf or in the capacity of permanent representative of another legal entity. Furthermore, the legal person can appoint anybody as its permanent representative (whereas before, the permanent representative had to have the capacity of a shareholder, director, member of the executive committee or employee of the represented company).
As opposed to the current legal regime, the same requirements will also apply to (international) associations and foundations that are appointed as a director, managing director or member of the management board.
No employment agreement possible
The new Code of Companies and Associations now clearly states that a person who acts as a member of a management body (be it the board of directors, the supervisory board or the management board) can, in that capacity, not be bound by an employment agreement with the company. Therefore, the person will in any event be considered as a self-employment person in this capacity.
This new legal provision is particularly relevant for persons who are currently member of an executive committee (“directiecomité / comité de direction”) in the sense of article 524bis of the Belgian Company Code. Sometimes, these persons are still rendering their services as an “employee” of the company. In the future, members of the management board will, by operation of the law, be considered as self-employed. From a theoretical point of view, it may still be possible to split the “corporate mandate” (self-employed status) from the technical, administrative or management services rendered to the company. In case the latter services are performed within the bounds of a subordinate relationship, the person concerned can still be bound by an employment relationship with the company. Nevertheless, from a financial point of view, it may be more interesting to render these services via a service agreement on a self-employed basis.
Dismissal (for officers that are not appointed in the articles of association)
Under the current Code of Companies, officers of a legal entity can be dismissed ad nutum (which means without a specific reason, at any time and without a termination indemnity). This principle was even of public law and order in the NV/SA. In the future, this principle will become the default rule.
Under the new Code, the articles of association can still stipulate that every director can be dismissed ad nutum.
The articles of association can however also stipulate that the dismissal of a director will be subject to certain modalities (such as a notice period and/or termination indemnity).
As a consequence, it will now become possible that the articles of association stipulate that the general meeting of shareholders may – at the moment of appointment of a director – conclude an agreement with the director that may contain a provision regarding the dismissal of the director.
In case the articles of association remain silent on the subject, the general meeting of shareholders may always decide to grant a notice period or a termination indemnity when deciding upon the dismissal of a director.
In any event, regardless of the content of the articles of association or the agreement with the director, a director can always be dismissed for cause, with immediate effect and without the right to compensation. The “dismissal for cause” is a new legal concept.
A person who is dismissed for cause can start court proceedings in order to dispute the dismissal.
New rules regarding the director’s and officer’s liability
The new Code of Companies and Associations introduces new rules regarding the liability of directors and officers (directors, persons holding the powers of daily management, members of management board and members of the supervisory board), within any kind of company, association or foundation.
The new Code of Companies and Associations states that such persons are only liable for a decision, an act or behaviour which is clearly outside the margin within which normal and careful persons in the same circumstances can reasonably hold a different opinion.
Furthermore, there is a quantitative cap for the director’s and officer’s liability, which depends on the size and turnover of the legal entity involved, as follows:
Liability cap
Average turnover on annual basis (excl. VAT) over
the last 3 years
Balance sheet total
1°
125K
Legal entities featuring:
turnover < 350.000 EUR and
balance sheet total < or = 175.000 EUR
2°
250K
Legal entities which are not sub 1° and featuring:
turnover < 700.000 EUR and
balance sheet total < or = 350.000 EUR
3°
1 Mio
Legal entities which are not sub 1° and 2° and which do
not exceed one of the following criteria:
turnover 9 Mio EUR
balance sheet total 4,5 Mio EUR
4°
3 Mio
Legal entities which are not sub 1° and 2° and 3° and:
which exceeded the threshold sub 3°
but which have not reached or exceeded any of the thresholds mentioned sub 5°
5°
12 Mio
Organisations of public interest and legal entities which
are not sub 1° and 2° and 3° and 4° and which have
reached or exceeded one of the following thresholds:
• turnover 50 Mio EUR
• balance sheet total 43 Mio EUR
This cap applies to all directors together, per incident, regardless of the number of claims and the legal ground for the claim.
The limitation of the liability does not apply in case of recurring light negligence, serious fault, fraud or in case there was an intention to damage. The limitation neither applies to certain tax and social security claims.
Under the new Code, it will in principle not be possible to enter into contractual arrangements (such as a hold harmless letter) which limit the director’s or officer’s liability beyond the legal liability cap. Such arrangements will be deemed null and void.
Certain exceptions, however, apply to this prohibition. Taking out a director’s and officer’s liability insurance on the other hand remains possible.
In case of questions, please contact:
Jurgen Goyvaerts, partner (jurgen.goyvaerts@curia.be)
Yvette Verleisdonk, partner (yvette.verleisdonk@curia.be)
Sarah Verschaeve, partner (sarah.verschaeve@curia.be)